Treasury Market Eyes Aggregated Streams


A new trading protocol has taken root in the electronic US Treasuries market, according to a recent poll conducted by industry analysis firm Greenwich Associates.

When asked which electronic trading methodology would be the most successful in three years, the majority of respondents did not select central limit order books (31%) or requests-for-quotes (11%), but chose aggregated streams (51%).

Kevin McPartland, Greenwich Associates

Kevin McPartland, Greenwich Associates

“You could look at it as the best of both worlds between central limit order book and RFQ, because you still get that sort of point-and-click functionality that people like in order-book markets,” said Kevin McPartland, managing director, market structure and technology at Greenwich Associates. “You also can get that bilateral interaction that allows you to maintain those relationships that you have through RFQ markets.

“This is something that we have been promoting for some time,” Nichola Hunter, CEO of LiquidityEdge, told Markets Media. “It’s taken a little while for us to educate and to help participants fully optimize their interaction through a streaming protocol versus the more familiar CLOB & RFQ models. So it was gratifying to see the outcome of the poll because it demonstrates that we and others are having an impact.”

With the rise of non-traditional liquidity providers in the Treasuries market, they can use aggregated bilateral streams to connect with end-customer directly as well as with their banks and buy-side counterparties, noted McPartland.

Trading via aggregated bilateral streams is trading in a non-CLOB order book where participants can rest and work orders, according to Hunter.

“It’s an order book where you as a consumer of liquidity can rest and work an order like in a CLOB but participants still only face the counter-parties or types of counterparties they desire,” she added. “This is typical in e-FX, and it’s something that we offer in Treasuries.”

Although electronic trading has tended to have a stronger foothold within on-the-run Treasuries, Hunter does not equate the trading protocol with just a portion of the market.

“Aggregated streams work equally well for on- and off-the-runs,” noted Hunter. “It really is just a matter of whether or not liquidity can be streamed in off-the-runs to a good enough extent that its attractive for participants and we, obviously, believe that it can be for the most liquid off-the-runs.

Greenwich Associates’ McPartland doubts that the dealer-to-client and dealer-to-dealer markets would adopt a single trading protocol. “But will we have more interactions with the various market participant types? It seems like we’re going in that direction,” he added.

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